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Can Tesla Motors Inc. Triple Delivery Rates in One Year?

Tesla Motors Model S. Source: Tesla Motors.

Editors Note: this article previously stated Tesla would deliver 100,000 units in 2015. This statement was made in error and should have stated, Tesla will increase its annualized delivery rate to 100,000 units in 2015. The Motley Fool apologizes and regrets this error.

Tesla Motors (NASDAQ: TSLA  ) has been a hot stock during the past 18 months, as investors continue to debate whether this is the next game-changing corporation, or an overvalued automaker in a niche market. Two of the biggest hurdles for Tesla are generating a GAAP-based profit, and increasing its vehicle production. In 2013, the automaker delivered roughly 22,500 vehicles. In its most recent earnings report, the company projects 2014 deliveries to be "more than 35,000" vehicles. 

The jump from approximately 22,500 to 35,000 vehicles represents an annual delivery growth rate of 55% from 2013 to 2014. However, in the most recent quarter, Tesla also announced another interesting note: It plans to increase its annualized delivery rate to 100,000 units in 2015.

How will this delivery growth be obtained?
Will Tesla really be able to increase sales by nearly 300% in just one year? The company cited increased production at its Fremont factory as the reasoning behind the increase. From the release:

"In addition, we are adding new production capacity at our Fremont factory that will allow us to meet the growing worldwide demand for our vehicles. The speed at which we are executing this capacity upgrade will allow us to exceed 35,000 Model S deliveries this year. Provided that we execute well and there are no serious macroeconomic shocks, Tesla's annualized delivery rate should exceed 100,000 units by the end of next year." (Emphasis added by author)

The short-term changes at the factory will result in about 2,000 fewer vehicles being produced in the third quarter, but will result in fourth-quarter production of "slightly more than 1,000 cars per week," as CEO Elon Musk explained on the conference call. The slowdown will lower third-quarter production to roughly 9,000 vehicles from 11,000.

One thousand cars per week is 52,000 cars... so what's that about 100,000?
The most recent changes at the Fremont factory have made it possible to produce more than 1,000 vehicles per week. However, in the conference call, Musk elaborated on how the company will top 100,000 vehicles per year. He said that, "In the case of new SX body line, which is a line that is designed to be capable of 2,500 units a week, maybe more than that, conservatively at 2,500 units a week, at a lower cost point, we should be able to do that in parallel."

This production-line change is expected to occur in the first quarter of 2015. Later in the call, Musk went on to say that he believes customer demand will be roughly split between the Model S and Model X -- with the possibility of slightly more demand for the latter -- where production will run at about 1,000 units of each vehicle per week. 

Tesla Roadster. Source: Tesla Motors

The math here gets relatively simple, as 1,000 units per vehicle equates to 2,000 vehicles per week for 52 weeks, or 104,000 units annually. 

Is this a for-sure thing? 
Of course, nothing is guaranteed. In the company's earnings release, it states that execution from the company has to be strong, and the economy has to hold up. But barring any severe setback from Tesla, or an economic collapse, these production estimates seem obtainable. 

The bump in production has likely caught most analysts off guard, including Adam Jonas, an equity analyst from Morgan Stanley. Tesla's new production estimates for 2015 are 25% ahead of Jonas' estimates for 2016. 

This isn't to pick on Mr. Jonas, because many analysts did not expect this type of output. It just shows how Tesla appears to be moving faster than most had previously thought. The company has already announced that its Gigafactory could be capable of producing enough batteries for 500,000 vehicles per year by 2020.

Not many people deny that Tesla makes a sweet ride. Valuing the company has been difficult, but the latest boost in production numbers makes it easier -- note... not easy -- to justify the current valuation, and makes 500,000 vehicles seem like an actual possibly in 2020, not just a pipe dream.

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Read/Post Comments (9) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 18, 2014, at 3:15 PM, ItsGoingUp wrote:

    "Tesla's annualized delivery rate should exceed 100,000 units by the end of next year." does not translate to the author's statement that "It plans to deliver 100,000 units in 2015."

    It means that if Tesla keeps producing at the same rate that it has achieved by the end of 2015, that then it will produce more than 100,000 units in 2016.

    Please try to get this right or you'll create unrealistic expectations.

  • Report this Comment On August 18, 2014, at 3:29 PM, deeageaux wrote:

    "Tesla's annualized delivery rate should exceed 100,000 units by the end of next year." does not translate to the author's statement that "It plans to deliver 100,000 units in 2015."


  • Report this Comment On August 18, 2014, at 5:09 PM, holidayday wrote:

    " It plans to deliver 100,000 units in 2015"

    No they don't.

    You emphasized the wrong thing in your quote: "Tesla's annualized delivery rate should exceed 100,000 units by the end of next year."

    Weekly output is about 1000 per week at end of 2014. Weekly output is about 2000 per week AT THE END of 2015, which gives an ANNUALIZED RUN RATE of about 100,000.

    Many many analysts have misread this. You are not alone.

    An estimate between 60,000 and 75,000 is proper for 2015.

  • Report this Comment On August 19, 2014, at 9:58 AM, haid1 wrote:

    Any headline posed as a question, is a waste of time. It says something quite directly, that the author doesn't want to be held accountable for text about to follow.

  • Report this Comment On August 19, 2014, at 4:44 PM, TMFBos wrote:

    Thank you for catching our error Fool readers, the article has since been updated to reflect the correct interpretation.

    If you see an error please feel free to click the feedback button on the bottom of the article underneath our disclosure. This is the the fastest way to address article concerns.

    Thanks Again,

    Blake Bos

    Bureau Chief

    Motley Fool

  • Report this Comment On August 20, 2014, at 10:15 AM, holidayday wrote:

    We appreciate the correction. I've rarely seen updates like this that corrects misinterpretations of data.

    It is highly appreciated.

  • Report this Comment On August 21, 2014, at 2:39 PM, jeffhre wrote:

    "Will Tesla really be able to increase sales by nearly 300% in just one year? "

    Sales? The announcement regards production rates, not sales. And certainly not 300% more sales. Shouldn't this section be updated as well?

  • Report this Comment On August 25, 2014, at 12:02 PM, restini wrote:

    Congratulations for correcting the article. Great move!

    Something that I wonder is why the secondary picture that illustrates the article is the picture of a Tesla roadster. I understand that it is part of Tesla history and I know it might be considered a minor subject but it has been two years that the model is not on production anymore. It is history and it is "old"history. I do think that a picture of the Model X or of the car's interior or platform or even one of the renderings of the future Model III would give the investing community a much more useful glance of what Tesla is and will be in the near future.

  • Report this Comment On August 26, 2014, at 2:18 PM, jeffhre wrote:

    Nearly two weeks and the nonsense is uncorrected. "The jump from approximately 22,500 to 35,000 vehicles represents an annual delivery growth rate of 55% from 2013 to 2014." Then to ~60,000 units for 2015, for a growth rate of 58%. Then to an annualized production rate of 100,000 units at the end of December of 2015.

    Which of these represents a projected sales increases of 300% in one year? Confessions of my biggest investing mistakes - thinking that analysts actually know what they are talking about.

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Bret Kenwell

At The Motley Fool I cover consumer goods and industrial companies, and mainly the automakers. I am a long-term investor looking for companies with sustainable and above average growth. I also like to uncover value, dividend-paying companies. Follow me on Twitter @BretKenwell

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